I had argued earlier how risk is defined wrongly and that Beta is a flawed measure and “outperforming stocks don't really (outperform)”. What I implied is that Classical Finance takes these high-sounding, laudable objectives and produces good-looking, 'logical' (therefore rational) models that are supposed to achieve these objectives.

But long after the Nobel Prizes have been given away and people have gone home, it often turns out that the model sold to an unsuspecting public was a lemon. Last time, we talked about CAPM, but other big models like Dividend Irrelevance or Efficient Markets Hypothesis do not stand up to scrutiny either. This time, we will talk about “market outperformance”, a common measure by which money managers (particularly the Mutual Fund industry) measures and sells itself. Since I got almost no mail last time, I presume that either everybody agrees with me or more likely, nobody understood what I said. Which is just as well, because the strategy I laid out last time is delivering returns that no mutual fund manager can even dream of.

“Market underperformance' is seen by ordinary investors as a measure of risk. The other side of the coin, “market outperformance” is not seen as risk, but is clubbed as return. No money manager will treat 'statistical variance' of his performance as part of risk/ uncertainty. Tracking error measures the variability of a fund manager's performance with that of the major stock Index, say, the Sensex.

Beta here has no meaning. The Sensex return is like the cost of capital in the investor's mind. Both investor and money manager treat Beta as a measure of risk, when actually, it is merely an indicator of variability. Like I mentioned last time, risk is not the same as variability, which in turn, is not the same as volatility. You cannot be a good trader unless you understand the nuances of the difference between these terms.

Yet, investors routinely input Beta in calculating their cost of capital, allocating a higher cost of capital to stocks/ portfolios with higher variability, with strange results. No wonder DCF models fail to predict stock prices. Like Warren Buffet pointed out sarcastically, a stock cannot be 'riskier' at $40 than it was at $80. Classical Finance, which measures historical volatility and then equates it with risk, would tend to classify a stock as riskier at $40, just when it is cheaper. Value investors know that a cheaper stock gives higher returns, not necessarily with higher risk. Actually, the risk is lower.

However, the risk, as calculated by Classical Finance is higher, because it confuses risk with volatility/variability. But as I pointed out, this risk is different from real risk, which, as Buffet points out, is actually lower.

The resulting situation is almost comical. “Higher the risk, higher the return” is an old aphorism going around the markets. It seems logical, almost intuitively true………yet good value investors know that it is not so. The risk referred to here is actually not risk, but variability/ volatility. Value investors know that the highest returns actually come from 'low-risk' stocks. At this point, both variability and volatility are usually at historic lows. This is a typical aberration found commonly in markets…the Indian markets are no exception. Maybe the regular occurrence of such phenomena ensures that the “efficient markets hypothesis” is a failure.

Which investor, who manages his own money, ever compares his 'performance' against the Sensex? The actual cost of capital to an investor is his opportunity return, usually bank deposits. In other words, his real cost is inflation, not the pulls and pushes of the Sensex. This brings me back to the old argument in favour of absolute returns, rather than market outperformance.

Why is this subterfuge perpetuated? Because the mutual fund industry gets its fees from the size of funds managed, not from the returns generated. So they compete within the asset class, i.e. after the investor has put a certain share of his wallet into mutual funds, he diversifies his portfolio mindlessly, hoping that such diversification will somehow give him a better risk-adjusted return.

Regulators support this with flawed regulations. Fees based on returns are for hedge funds who need to focus on absolute return strategies in order to keep body and soul together. But the flawed logic of classical finance sees this as 'risky' and hence not for the small investor. So the poor guy lives with genuine risk, producing sub-inflationary returns on a mutual fund investment, while the smart, rich guys hire absolute return managers to take care of their portfolios.

Measurement of portfolio performance was a very good idea in its objective. It just went awry in its implementation. The application of various measurement techniques has vitiated the very purpose it was meant to achieve… the achievement of a proper, risk-adjusted return on the investor's capital.

It has perpetuated the idea that a money manager can be evaluated by a finite set of measurable, mathematically sound metrics that are standard across the entire set of managers. It assumes that the rules used to allocate your funds are repeatable, standardized and independent of their environment.

It tries to reduce to a logical evaluation, the study of process (of investment) that succeeds because of a very subjective skill. Just consider this: Your real cost in an investment is inflation and risk (i.e. variability of return and volatility of principal, not the Beta). Measuring investment performance against inflation ensures that you remain focused on absolute returns, while measuring risk ensures that you achieve genuine diversification, not the artificial, meaningless diversification achieved by trusting a larger number of strange 'mutually distrustful' faces.

All eyes were on ECB and BOE which had their meeting today. Market across saw profit booking. US markets endd up on the back of Fed's decision to keep interest rate unchanged. Indian Indices rallied at the start but selling engulfed after Europe started off weak fuelling the sell off in Indian markets. Buying activity was witnessed across all sectors along with small caps and mid caps. Companies like AIA Engg, Rolta, Everest Kanto, Educomp, Financial Tech etc rallied after the news that they will be in FNO segment from Monday 14th, 2007. Rupee depreciated today as it closed at Rs 41.28 per Dollar.

It was a cautious start in Europe ahead of interest rate decisions. The Bank of England has raised its benchmark interest rate by 25 bps to a six year high of 5.5%. While ECB kept its Interest rate unchanged. Asian Indices closed Tomorrow the UP election results will trickle in. Inflation number is expected to come in at 5.73%. There are talks of a SLR cut. The banking stocks were up in anticipation. There are reports of some policy changes here but really tough to even guess what could that be.

It was a start with a bang and Indices raced up to almost 200 points gain. However after a choppy mid afternoon session, markets tumbled into negative on reports of some large basket selling by an FII. Reasons could be largely excuses attributed to the UP elections uncertainty and to the European Interest rate issues as well.

Maruti Udyog ended a percent lower. The bids for 2.96 cr shares or 10.27% stake in the company which is held by Govt. were invited. The floor price for the sale was placed at Rs.760 per share by the Govt. Shares were issued to 32 bidders out of the 36 bidders who had submitted their bids. Life Insurance Corporation of India which already holds 8% stake in the company was allotted 1 cr shares through the deal. Reliance Mutual was allotted 20 lakh shares. 12.3 lakh shares were given to Punjab National Bank while 10 lakh shares were allotted to HDFC mutual. SBI mutual got 7 lakh shares through this transaction. While Birla MF and SIDBI were not allotted any shares.The average realization for the transaction came to Rs.796 per share. The whole stake generated a revenue of Rs.2,368 to the Govt. The company is already feeling the impact of increased interest rates. The sale of stake is an event which is over with. We expect Maruti to see weakness in the face of increasing competition.

Domestic passenger car sales grew by 11.25 per cent in April at 82,934 units as against 74,542 units in the same month a year ago. Domestic motorcycle sales during the month stood at 4,63,091 units as against 5,12,695 units in the same month a year ago, down by 9.7 per cent. Overall two wheeler sales also dipped by 6 per cent to 5,70,381 units for the month ended April as against sales of 6,06,495 units registered in the corresponding month a year ago. Sale of commercial vehicles in the country grew by 6.5 per cent at 30,836 units as against 28,967 units in the corresponding month a year ago. However, The two wheelers have shown surprising weakness. The Passenger vehicles and CVs have shown strength. We would have actually expected otherwise. Strong interest rates are expected to have an impact in the coming quarters.

Technically Speaking: Sensex ended flat with Breadth in favor of Declines. Rs. 4,289 cr was the Overall term churned in BSE. Sensex Resistance lies at 14,000 levels while the support is at 13,630 levels.

Attached is a chart on major housing indicators for the US - housing starts, new home sales and existing home sales. At a trend level (measured by the 12mma of month-on-month growth), all three are de-growing. The sharpest de-growth is visible housing starts, the most closely tracked housing indicator.

The National Association of Realtors' forecast seems to suggest that existing home sales de-growth maybe close to its bottom, new-home sales are likely to witness a far sharper slowdown going forward.

The Fed has noted the cooling off in the housing market . In its March FOMC statement it noted that " Recent indicators have been mixed and the adjustment in the housing sector is ongoing." In its statement for May, to be released at 11:45 pm India time today, it is likely to reiterate the slowdown in the housing market. Rising asset prices had been a key concern for the Fed when it started hiking rates in 2003.

India's largest private company, Reliance Industries, is on a huge fund-raising drive. After completing a preferential issue of 120 million warrants to promoters in February this year for Rs. 16,824 crore, the Mukesh Ambani controlled company is now planning to mop up around Rs 10,000 crore through a combination of convertible bonds and treasury stock.

According to highly placed industry sources, the company is likely to issue foreign currency convertible bonds/ warrants/convertible debentures to be converted within 12-18 months at Rs. 1,900-2,100 a share. The Reliance Industries scrip is trading at Rs 1,597 and the company has the highest market capitalization of Rs. 2,22,557 crore on the Indian bourses.

At the time of conversion, Reliance Industries would use treasury stock and not issue fresh equity in lieu of the convertible instruments, investment banking sources said on condition of anonymity.

Asked about the issue, a Reliance Industries spokesperson said, "We do not wish to comment on market speculation."

After absorbing IPCL, Reliance Industries holds around 13.6 per cent, or 198 million shares, as treasury stock. Since the conversion is planned at around Rs 2,000 per share, the company could issue nearly 20 million shares, which would result in a dilution of the promoters' indirect interest by around 1.2 per cent to 53.8 per cent.

In February, Reliance Industries issued 120 million convertible warrants to its promoter, Mukesh Ambani, at Rs 1,402 per warrant to be converted into shares within 18 months. This will prop up Ambani's stake in Reliance Industries to 55 per cent on an enhanced paid-up capital of Rs 1, 573.5 crore--after the IPCL merger and the warrants issue--from 51 per cent of the current paid-up capital of Rs 1,393.5 crore. With a dilution of 1.2 per cent treasury stock, the promoters' holding will still remain significantly above 51 per cent.

At the proposed conversion rate and on the enhanced equity base, the market capitalisation of Reliance Industries will jump to over Rs 3,00,000 crore at the time of conversion.

The funds thus raised will be invested in the petrochemicals business and also in exploration for and transportation of gas. As Reliance industries embarks upon a massive expansion plan, the company intends to mobilise funds through equity and not entirely through the debt, according to sources.

According to the media report below RIL plans to mop issue FCCB worth INR 100 bn from FCCB @INR1900-2000/share and issue treasury shares in lieu of the same.

We believe that RIL does not require equity issuance to fund its capex programme considering it low debt/equity ratio of 0.2x. Issuing FCCB may not be required until RIL has some larger plans of capex. On the other hand, it is positive if RIL uses treasury shares that it holds with itself (worth INR 300 bn) to issue shares.

Issuance of FCCB without a corresponding capex announcement may be dilutive to current shareholders (less likely). Therefore, we would like to not give too much into the news item until we hear announcements from the company on the same.

We had downgraded RIL to ACCUMULATE from BUY . We believe that the stock has run up too fast and that there is limited upside from current levels. At INR 1600, RIL trades at 21.8x FY08E EPS.

In stark contrast to the strong intra-day rebound witnessed on Wednesday 9 May 2007, a late sell-off pulled the market in the red at closing bell. A sudden and sharp fall materialised in the last two hours or so of trade.

Caution ahead of the outcome of assembly poll results in Uttar Pradesh tomorrow, 11 May 2007, and subdued European markets pulled down domestic bourses lower in late trading from earlier strong gains.

As per market talks, there was basket sales worth about Rs 200 crore in Nifty stocks from one of the market participants.

A host of Sensex constituents, ONGC, NTPC, Ranbaxy, Reliance Industries (RIL) and Reliance Energy (REL), came under selling pressure in the second half of the trading session.

The 30-share BSE Sensex lost 10.28 points, or 0.07%, to 13,771.23. Before the sharp slide that materialised at the tail end of the trading session, the market was firm but range bound in afternoon trade, when the Sensex had moved between 13,920 to 13,960, which was a gain of about 140 to 180 points for the day.

Earlier in the day, the market had opened firm, tracking buoyant global markets and on US Federal Reserve’s decision on Wednesday, 9 May 2007, to keep interest rates steady. The Sensex had firmed up further in mid-morning trade and risen almost 200 points for the day.

The S&P CNX Nifty shed 12.50 points, or 0.31%, to 4,066.80. Nifty May futures turned to discount from premium over spot price. Nifty May 2007 futures provisionally settled at 4044.10, a discount of 22.70 points over the spot price. On Wednesday,9 May 2007, Nifty May futures had ended at a premium of 14.05 points over the spot price.

The market breadth ended negative in contrast to a strong breadth earlier during the day: 1,328 shares declined on BSE as compared to 1,238 shares that rose,while 68 were unchanged. Losers outpaced gainers by a ratio of 1.07:1.

BSE clocked a turnover of Rs 4289 crore compared to average daily turnover of Rs 4314.41 crore in the first five trading session of this month( from 3 to 9 May 2007). The average daily turnover was Rs 3931 crore in April 2007.

The Sensex had gained 16.05 points, or 0.12%, to settle at 13,781.51 on Wednesday, 9 May 2007,making a solid rebound from an intra-day fall of 153.42 points. The intra-day recovery on that day followed a similar trend in other Asian markets.

Polling for the seventh and final phase got over on Tuesday, 8 May 2007. Counting of votes is due on 11 May 2007, and results expected the same day. The UP vote is seen as a barometer of national political trends. The state is headed for a hung assembly, exit polls said on Wednesday, 9 May 2007, and ebbing support for Congress, which rules nationally, could see it delay reforms.

European shares fell on Thursday, 11 May 2007, led by declines in mining stocks as bid talk surrounding Rio Tinto evaporated, while banking stocks dipped ahead of two key central bank meetings on monetary policy. The Bank of England raised interest rates to a six-year high of 5.5 percent on Thursday as it voiced concern that diminishing spare capacity in the UK economy and greater pricing power skewed inflation risks to the upside. The European Central bank (ECB) is likely to hold its rates steady at 3.75%, but signal a hike in June in its meeting later (IST) today.

BSE’s sectoral indices were mixed. The metal index rose 139.86 points, or 1.4%, to 10,106.75 on the back of gain in Tata Steel. The FMCG index advanced 15.39 points, or 0.85%, to settle at 1,819.39. The banking sector index, Bankex, moved up 12.55 points, or 0.18%, to 6,863.90.

The oil & gas index lost 74.31 points, or 1%, led by the fall in ONGC and Reliance Industries(RIL). The IT index lost 9.45 points, or 10.9%, to 4,878.17.

Small-cap and mid-cap indices edged up a bit. The BSE Small Cap index gained 32.89 points, or 0.48%, to 6,951.49. The BSE Mid Cap index gained 23.97 points, or 0.4%, to 5,816.12. The two indices have witnessed consolidation of late after their recent rebound.

Oil exploration major ONGC lost 3% to Rs 882. This was in contrast to an early 2.2% rise in the stock to Rs 929.70 that was triggered by reports the government had decided to reduce the subsidy share of upstream companies by nearly Rs 5000 crore.

TCS shed 0.5% to Rs 1230. The stock had risen as much as 1.8% to Rs 1260 in early trade, boosted by comments by the Federal Reserve that the US economy is growing at a moderate pace, and core inflation, while elevated, is likely to slow.

Car major Maruti Udyog shed 1.3% to Rs 792. The stock had risen as much as 1.1% to Rs 835 in early trade. The Group of Ministers likely to finalise later today the allotment of the government’s residual 10.27% stake in the car maker. The stake is to be sold to banks, mutual funds, and financial institutions.

Housing finance major HDFC, which was up 5.3% to Rs 1681.80, held firm right from the onset of the trading session. Concerns about rising domestic interest rates eased a bit following the Fed decision on Wednesday, 9 May 2007, to keep interest rates steady.

Though Tata Steel was up 2.8% to Rs 578, it was down from the session’ s high of Rs 584.70. The company is seen reporting strong numbers when it unveils its FY 2007 (year ended 31 March 2007) results on 17 May 2007 on higher steel prices. Last month, it had announced an attractively priced rights issue at Rs 300 each in 1:5 ratio.

Bajaj Auto rose 1.5% to Rs 2605 but the stock came off higher level from an intra-day 4% rise. After trading hours today, 10 May 2007, the two-wheeler maker said its board would consider proposal for demerger along with FY 2007 results on 17 May 2007. Bajaj Auto's (BAL) demerger proposal is intended to unlock shareholder value by splitting the manufacturing and financial assets into two separate companies.

Mid-Day Multimedia jumped 7% to Rs 47.70. The stock had declined sharply over the past two days after it had reported a net loss in Q4 March 2007 versus a net profit in Q4 March 2006.

Fortis Healthcare inched up almost 1% to Rs 100.95. Volumes in the stock were a huge 54.2 lakh shares on BSE. The stock had settled at Rs 100 on BSE on Wednesday, on its debut, at a discount of 7.4% over the IPO price of Rs 108.

Telecoms software provider Subex Azure dropped nearly 4% to Rs 602.95 even as the company said on Thursday, 10 May 2007. it won a contract from telecom services firm mCel in Mozambique to provide fraud management and revenue assurance services.

Lupin was flat at Rs 709. The company said today, 10 May 2007, it had made an equity investment in Symbiotec Pharmalab, a company focused on steroids, for a majority stake.

Rolta India, Moser Baer, Patel Engineering, Educomp Solutions and Deccan Aviation were up by between 5% to 10% after their inclusion in the futures and options (F&O) list by the National Stock Exchange from 14 May 2007. This may increase liquidity in these stocks on account of higher interest in them.

United Phosphorus dropped 0.7% to Rs 291.30 after a block deal of four lakh shares was registered in the stock at Rs 297 per share on BSE.

Mahindra Ugine Steel gained 1.4% to Rs 92.20 after a block deal of 10 lakh shares, or 3.1% of the company's equity, on BSE.

GVK Power & Infrastructure jumped 10% to Rs 366.50 after the company said it plans to raise Rs 1221 crore through an issue of shares priced at Rs 325 each.

Sterlite Optical Technologies rose 4.23% to Rs 184 after the company said its export order book for power transmission conductors was at $62 million.

Bharat Gears gained 1.5% to Rs 71.60 after the company said its foreign Collaborator ZF Friendrichshafen AG, Germany had sold its 20% stake in the firm to promoter Surinder P Kanwar on 30 April 2007.

A strong rebound on the domestic bourses had materialised as the initial Q4 March 2007 results were strong and Infosys issued a strong guidance for FY 2008 on 13 April 2007. From 12,455.37 on 2 April 2007, the Sensex had surged 1,773.51 points (14.2%) to 14,228.88 on 26 April 2007. It has since turned volatile.

Key economic data due on Friday, 11 May 2007, are of industrial production in March 2007. The market expects between 9% to 11% per annum growth in industrial production in the month. Industrial production had risen 11% per annum in February 2007, which was slightly lower than the 11.4% per annum growth in January 2007.

Another important data due on Friday is inflation. India's wholesale price inflation rate is forecast at 5.73% for the 12 months to April 28, lower than the annual 5.77% a week before. The data will be released at about 12:00 IST on Friday, 11 May 2007.

FIIs were net buyers of Rs 23.30-crore equities on Wednesday, 9 May 2007, in contrast to their outflow of Rs 222.10 crore on Tuesday, 8 May 2007. FIIs had made heavy purchases in April 2007, helping the market stage a solid rebound from lower level. Their inflow in April 2007 totaled Rs 6679.20 crore.

As per provisional data, FIIs were net buyers to the tune of Rs 153.27 crore today. Domestic institutional investors were net buyers to the tune of Rs 386 crore.

With the bulls firmly in control for almost the entire trading session, stocks from across sectors posted smart gains and the market appeared to be heading towards a firm close. But that was before a strong bout of profit taking towards the close shaved off nearly 206 points from the day’s high. The Sensex witnessed strong optimism after resuming with a positive gap of 41 points at 13823. The US Fed’s decision to keep interest rates unchanged turned sentiments from cautious to bullish. While the action in several counters held the market firm above the 13900 levels in the first half of the trading session, the index notched up further gains in the afternoon to touch the day's high of 13977. However, the market slipped towards the close as the weakness in select heavyweight, oil, capital goods and public sector stocks dragged the index to an intra-day low of 13745. The Sensex finally ended the session with a loss of ten points at 13771, while the Nifty shed 12 points to close at 4067.

The broader market remained weak. Of the 2,634 stocks traded on the BSE, 1,328 stocks declined, 1,238 stocks advanced and 68 stocks ended unchanged. Among the sectoral indices the BSE Oil & Gas index dropped 1.03% at 7156, the BSE PSU index shed 0.98% at 6,355 and the BSE CG index was down 0.72% at 9874.

Among the major losers ONGC dropped 2.20% at Rs889, NTPC slumped 2.11% at Rs151, Ranbaxy shed 1.84% at Rs386, Tata Motors lost 1.24% at Rs714, L&T declined 1.16% at Rs1,691 and Maruti Udyog slipped by nearly 1.02% at Rs795. However, HDFC notched up gains of 5.26% at Rs1,680, Tata Steel rose 2.50% at Rs576, Bajaj Auto added 1.74% at Rs2,609, ITC advanced 1.71% at Rs163, HDFC Bank moved up by 1.60% at Rs1,012 and Hindalco gained 1.52% at Rs147.

Buy NDTV with stop loss of Rs 324 for a target of Rs 445.Buy Indian Bank with stop loss of Rs 115 for a target of Rs 155.

Rajat K Bose

Buy Reliance Energy with stoploss below 514 for a target of Rs 530-534-539. This is a day-trading recommendation.Buy Rel Comm with stoploss below 455 for a target of Rs 475-479. This is a day-trading recommendation.

Deepak Mohoni

Buy SBI below Rs 1125 with stop loss of Rs 1110. This is a day-trading recommendation.Short Sell Cairn India above Rs 128 with stop loss of Rs 131. This is a day-trading recommendation

The NIFTY futures saw a rise in OI to the tune 4.74% with prices coming up from lows and closing near day's high indicating long positions being built up aggressively in the market at lower levels which forced bears to cover their positions .The discount in nifty futures narrowed and nifty futures closed at 19 points premium to spot nifty indicating aggressive short covering seen in the market and fresh long positions built up in the market . The FII sold index futures to the tune of 602crs and sellers in index options to the tune of 48crs. The PCR has come up from 1.17 to 1.12 indicates some weakness may be seen in the market. The IV is around 25.40 levels indicating some volatile trading sessions ahead.

Among the Big guns, ONGC saw 1.63% rise in OI with prices almost flat indicating that the counter may remain in a range before taking any sharp movement on either side. Whereas RELIANCE saw 4.19% rise in OI with prices coming up from low indicating buying spree emerging at lower levels and rise in prices was mainly driven by fresh long positions built up in the counter. The counter may see further built up of positions before taking any sharp and directional move which in turn may help to get clue about market's direction.

In the TECH front, INOFSYSTCH& TCS & SATYAMCOMP saw significant rise in OI with prices coming down though market went up indicating selling pressure emerging which in turns indicating lack of confidence in the IT pack on positive side .The only exception was WIPRO which saw shorts covering their positions and the counter closing near day's high indicating buying emerging at lower levels in this counter indicating strength in this counter.

In the BANKING counters, all the majors saw rise in OI significantly with gain in values indicating buying emerging in this pack and shorts covering their positions which in turn may help these counters to rise. SBIN saw rise OI to the tune of 6.72% with prices coming up sharply and closing near day's high indicating fresh long positions being built up in the counter indicating strength in the counter .ICICIBANK saw rise in OI to the tune of 7.08% with rise in prices indicating long positions being built up in this counter indicating strength in the counter.

In the metal pack TATASTEEL saw rise in OI to the tune of 5.08% with price up to the tune of 2.49% indicating built up of long positions in this counter and short covering their positions aggressively suggesting strength in this counter .SAIL saw rise in OI with prices almost flat indicating uncertainty may prevail in this counter. HINDALCO saw marginal drop in OI with prices almost flat indicating lack of activity in the counter .STER saw drop of positions with prices positive indicating buying emerging in this counter indicating strength in the counter.

We feel that the volume and built up in OI suggests that market may show some short positions being built up and long positions liquidation as uncertainty prevail in the market .Market may show weakness if it closes below 4025 levels where we may see fresh short positions built up in the market and long liquidation in the market .One should trade with strict stop losses to be adhered too.

The market may extend Wednesday’s gains tracking firm Asian markets. But the upside may be capped ahead of the outcome of assembly polls in Uttar Pradesh on Friday 11 May 2007. Corporate results announced so far have been strong. The major Q4 result today is Asian Paints. FIIs have turned sellers over the past two days which also may cap upside.

The US Federal Reserve's decision to leave interest rates on hold lifted Asian shares on Thursday. Key benchmark indices in China, South Korea, Singapore and Taiwan were up by between 0.2% to 0.8%. Japan’s Nikkei was flat and Hong Kong’s Hang Seng was down 0.2%.

US stocks rose on Wednesday after the Federal Reserve's latest policy meeting ended without any unwelcome surprises, allowing investors to refocus on the solid outlook for corporate profits. In its post meeting policy statement Fed said the economy is growing at a moderate pace, and that core inflation, while elevated, is likely to slow.

The Dow Jones industrial average gained 53.80 points, or 0.40 percent, to end at 13,362.87 -- its 21st record closing high this year. The Standard & Poor's 500 Index rose 4.86 points, or 0.32 percent, at 1,512.58. The Nasdaq Composite Index was up 4.59 points, or 0.18 percent, at 2,576.34.

At home, the undertone is cautious ahead of the outcome of the assembly election in Uttar Pradesh. Polling for the seventh and final phase got over on Tuesday (8 May) and counting of votes is due on 11 May, and results expected the same day. The UP vote is seen as a barometer of national political trends. The state was headed for a hung assembly, exit polls said on Wednesday (9 May 2007), and ebbing support for the Congress, which rules nationally, could see it delay reforms.

FIIs were net sellers to the tune of Rs 222.10 crore on 8 May compared to their inflow of Rs 96.70 crore on 7 May. As per provisional data, FIIs were net sellers to the tune of Rs 300 crore on Wednesday 9 May. FIIs had made heavy purchases in the month of April 2007 that helped the market stage a solid rebound from lower level. Their inflow in April 2007 totaled Rs 6679.20 crore.

The key economic data due on Friday (11 May) is industrial production data for March 2007. The market expectation is of a between 9% to 11% growth in industrial production in the month. Industrial production had risen 11% in February 2007 which was slightly lower than 11.4% growth in January 2007.

Yesterday's pullback and firm economy outlook may help the market advance further. Asian indices are displaying a subdued trend in the ongoing trades and may exert some pressure on the domestic indices. However, players are maintaining their bets on almost all the sectors. Among the key local indices, the Nifty has a support at 4040 and a break below this level could see it slip further to 4000-3980, while on the upside the index could test higher level at 4125. The Sensex has a likely support at 13700 and may face resistance at 14300.

Major US indices registered significant gains on Wednesday, with the Dow Jones industrial average ending at a record high, on the reports that the Fed Reserve will not hike short-term interest rates. While the Dow Jones flared up by 54 points at 13363, the Nasdaq moved up by 4 points to close at 2576.

Most of the Indian ADRs traded firm on the US bourses. MTNL led the pack with gains of 3% while Infosys, Satyam, Wipro, HDFC Bank, MTNL, VSNL, Dr Reddy's and Rediff jumped over 1% each. Among the laggards Tata Motors lost 0.45%.

Crude oil prices eased, with the Nymex light crude oil for June delivery falling by 71 cents to close at $61.55 a barrel. In the commodity space, the Comex gold for June delivery slipped by $4.90 to settle at $682.50 an ounce.

Watch out for the fellow who talks about putting things in order! Putting things in order always means getting other people under your control.

A late bounce enabled the bulls to break a three-day losing streak yesterday. Banking stocks led the rebound. Market grapevine has it that the RBI may relax the Statutory Liquidity Ratio (SLR) sooner rather than later. Whether the rumour is true or not only time will tell. One should not get swayed by such market talk as it is fraught with risk.

Among the banking stocks, trades between FIIs saw SBI quoting at a premium of 221% on BSE at Rs1,370 as against the spot price of Rs1,122.90. PNB traded at a premium of 17.49% on the BSE as against the spot price.

Reliance Industries is reported to be on a huge fund-raising drive. The company is planning to mop up around Rs100bn through a combination of convertible bonds and treasury stock. Reports say the company is likely to issue foreign currency convertible bonds/ warrants/convertible debentures to be converted within 12-18 months at Rs 1,900- 2,100 a share.

The market remains in a 'no man's land' situation. In the immediate future we are unlikely to see any major crash nor will there be a non-stop rally to lift the main indices past the previous all-time highs. We expect the market to remain rangebound and volatile in the near term.

Inflation will be a major factor to keep an eye on, as will be movement in the currency markets and inflows from FIIs. Globally, one needs to focus on the key economies like the US, Japan and China.

Talking of global markets, the Federal Reserve offered no surprises yesterday. The FOMC left its key overnight lending rate unchanged at 5.25% for a seventh consecutive meeting. The Fed noted the steep slowdown in economic growth but indicated that it was still worried about inflation, saying "the predominant policy concern remains the risk that inflation will fail to moderate as expected."

Today we expect a flat to slightly higher opening given the mixed show by Asian markets. One big worry is that inflows from FIIs have tapered off this month after last month's deluge. The market needs this trend to reverse for making any significant progress.

US Treasuries maturing in two years declined the most in more than a month after the Fed move. The yield on the benchmark 10-year security increased 3 basis points to 4.67%. Two-year yields exceed those of 10-year notes by 6 basis points, the widest inversion to the yield curve since March 12 when the difference was 8 basis points.

US stocks rallied on improved profit forecasts and continued takeover speculation that pushed the Standard & Poor's 500 Index within 1% of its 2000 record. The Dow Jones Industrial Average rose to its sixth record in seven days.

The S&P 500 rose 4.86, or 0.3%, to 1512.58. The benchmark closed at an all-time high of 1527.46 in March 2000. The Dow climbed 53.80, or 0.4%, to 13,362.87. The Nasdaq Composite Index increased 4.59, or 0.2%, to 2576.34.

US stocks briefly erased their gains after the Fed released its statement. But stocks turned higher in the last 90 minutes of the session as investors breathed a sign of relief that the Fed meeting and statement brought few surprises.

US light crude oil for June delivery fell 79 cents to settle at $61.47 a barrel on the New York Mercantile Exchange after a government report said that gasoline supplies rose last week, diminishing worries about any supply shortage ahead of the start of the summer driving season. The front-month contract was quoting 11 cents higher at $61.66 a barrel in extended trading in Asia.

In currency trading, the dollar gained against the euro and yen following the decision. COMEX gold for June delivery fell $4.90 to settle at $682.50 an ounce.

European indexes advanced overnight. The pan-European Dow Jones Stoxx 600 index rose 0.2% to 390.60. The UK's FTSE 100 closed flat at 6,549.60. The French CAC-40 gained 0.3% to 6,051.63 and the DAX Xetra 30 added 0.5% to 7,475.99. Both the Bank of England and the European Central Bank will make interest-rate decisions on Thursday.

Asian stocks fell from a record on Thursday. The Nikkei in Tokyo was flat at 17,748 while the Hang Seng in Hong Kong slid 104 points to 20,740. The Straits Times in Singapore rose 7 points to 3460 and the Kospi in Seoul climbed 12 points to 1606.

In the emerging markets, the Ibovespa in Brazil surged 2% to 51,300 while the IPC index in Mexico advanced 1.4% to 29,992 and the RTS index in Russia fell 0.7% to 1913.

Weak markets ended flat with a positive bias. Bulls were back on the bourses after being in the sidelines in last three trading session. Weak global cues dragged the key indices to register negative opening. Prolonged selling pressure in the Technology stocks dragged the benchmark Sensex to hit a low of 136121.04. All the key sectoral indices except for the BSE Technology and BSE Oil & Gas index recovered its early losses.

However, index heavy weights like Bharti Airtel, Reliance Industries, ICICI Bank and L&T attracted buying interest towards the end lifting the markets to close in green snapping its three-day losing streak. Finally, the 30-share benchmark Sensex gained 16 points to close at 13781. NSE Nifty was up 3 points to close at 4079.

Fortis Healthcare Ltd made a subdued debut on the bourses with the stock slipping below the Rs100 mark. The stock opened at Rs104 on BSE as against the issue price of Rs108 per share. Ther scrip finally closed at Rs100 touching an intra-day high of Rs110 and a low of Rs98.05 recording volumes of over 2,00,00,000 shares of NSE.

Lupin slipped by 1.7% to Rs710. The company received an approval from the US Food and Drug Administrative (USFDA) for Cefdinir for Oral Suspension, 250 mg/5mLThe scrip touched intra-day high of Rs734 and a low of Rs702 and recorded volumes of over 40,000 shares on NSE.

ONGC was down by 1% to Rs909. Accordion to reports The company struck upon a big oil & gas discovery in the Persian Gulf. The scrip touched intra-day high of Rs939 and a low of Rs897 and recorded volumes of over 16,00,000 shares on NSE.

Patel Engineering edged higher 0.3% to Rs374 as it decided to set up a real estate arm for unlocking value from a land bank of over 500 acres in Mumbai, Bangalore, Hyderabad and Chennai. The scrip touched intra-day high of Rs387 and a low of Rs370 and recorded volumes of over 2,00,000 shares on NSE.

Gail dropped by over 4% to Rs281. The company announced its Q4 results with net profit of Rs6.8bn (up 66%) and total Income at Rs39.96bn (up 6.7%). The scrip touched intra-day high of Rs293 and a low of Rs280 and recorded volumes of over 15,00,000 shares on NSE.

Banking stocks gained momentum on back of fresh buying. Index heavy weight SBI surged by nearly 4% to Rs1122, PNB gained by 2.3% to Rs509, Bank of India advanced by 2.9% to Rs194 and Bank of Baroda added 2.6% to Rs243.

Select FMCG stock ended firm in a weak market. Britannia surged by over 7% to Rs1484, Tata Tea advanced 1.7% to Rs774, Marico was up 2% to Rs56, McDowell was up 0.6% to Rs873 and ITC added 0.5% to Rs160.

Technology stocks continued its downtrend. Frontline stock Infosys was down by 1% to Rs1980, Sataym Computer edged lower by 0.5% to Rs452, Moser Baer dropped by 3.2% to Rs351 and HCL Tech lost 1.5% to Rs326.

Consumer Durable stocks also ended on the receiving end. Gitanjali Gems dropped 0.6% to Rs194, Rajesh Exports was down 1.5% to Rs375 and Videocon declined 0.3% to Rs439.

Sterlite Optical gets order worth $62mn for Power Transmission Conductors.

RESEARCH

RPG Transmission Ltd. (Q4 FY07) - Investment Update.

During Q4FY07 and FY07, RPG Transmission Ltd. (RPGTL) registered a bottomline growth of 165.6% and 185.3% at Rs100mn and Rs257mn respectively. The strong momentum in the sector coupled with improving efficiency of the company, enabled it to register 56.8% and 185.3% topline and bottomline growthrespectively for FY07. Post successful CDR (during FY06) and continuance of healthy order book of Rs4.8bn, we expect RPGTL’s revenues and net income to register a 32.3% and 57.3% CAGR respectively over FY06-09E.

At Rs203, RPGTL trades at a P/E of 10.6x and 8.2x its FY08E and FY09E earnings of Rs19.4 and Rs19.4 respectively. During H1FY07 there was a slow down in orders from PGCIL, which led to a de-rating of the sector, however now withissues being resolved we expect orders to keep flowing. However, we believe with orders expected to flow primarily from PGCIL, the order book size of RPGTL is only set to head northwards. We recommend a BUY rating on the stock with a target price of Rs275 over the next 12 months.